Under PDPM, Benefits of In-House Medicare Advantage Plans Will Go Beyond Money

Forward-thinking skilled nursing providers have increasingly warmed to the idea of starting a special kind of in-house Medicare Advantage plan in order to take more control over their reimbursements in an uncertain environment.

But the strategies that operators must adopt to succeed with Institutional Special Needs Plans (I-SNPs) also fit seamlessly into preparations for the new Medicare payment model for nursing homes, according to one plan executive — making the I-SNP leap potentially beneficial for both patients and operators’ bottom lines.

“The broader industry trends are tracking with the requirements to be successful in an I-SNP,” Hank Watson, vice president of corporate development at insurer American Health Plans, said during a Thursday webinar hosted by advisory firm CLA, formerly CliftonLarsonAllen. “The benefit of the I-SNP is you get paid for executing what we all have to do anyway. Hospitalization rates for long-term residents are now reported; PDPM now requires a lot of this. It aligns well.”


The Patient-Driven Payment Model (PDPM), set to take effect October 1, will replace the current therapy-driven Medicare reimbursement system for nursing homes with a model that rewards providers for accurately recording patient conditions and treating them accordingly. For instance, operators will need to become fluent in ICD-10 codes, a type of diagnosis identification system currently more prevalent in the acute-care space, while also ensuring that all resident medical issues — and the subsequent care — are documented clearly and accurately.

In addition, PDPM will create major opportunities for operators that can care for residents with more complex medical conditions, as fee-for-service Medicare reimbursements will be linked more closely to residents’ actual conditions, and not the gross amount of therapy they receive.

Those processes, which SNFs have been working to implement since PDPM was first proposed last year, also play a key role in the proper operation of I-SNPs — specific Medicare Advantage plans designed to cover residents of nursing homes and other institutional sites of care.


ICD-10 codes are critical to accurately determining the premium amount, Watson said, meaning that a provider with its own I-SNP plan will have a dual incentive to ensure that those diagnoses are captured.

It’s a factor that any provider considering the leap into Medicare Advantage should consider, CLA principal Stephen Taylor said during the discussion.

“Are you really, today, based on the acuity of your patients: Are we really coding those properly and getting the premium that we should?” he said.

I-SNPs’ synchronicity with new payment models doesn’t just include PDPM, either. Hospital admissions have emerged as a key metric under the SNF Value-Based Payment (VBP) model, which sees operators automatically lose 2% of their Medicare reimbursements if they don’t reduce costly resident trips back to the acute-care setting.

Once a provider becomes an insurer, the hospitalization rate takes on even greater importance. Watson presented a case study showing that a SNF resident with the same conditions could generate a modest $82 profit for an I-SNP plan should he or she remain out of the hospital; a single acute-care event pushes that down to a loss of more than $15,000.

Source: CLA and American Health Plans

But I-SNPs also come with a secret rehospitalization weapon: the three-day stay waiver. Like those covered under other types of Medicare Advantage plans, residents in an I-SNP do not need a three-day hospital admission to receive a subsequent 100 days of skilled nursing care. As a result, savvy operators that have already built up a higher-acuity infrastructure to win under PDPM can potentially treat certain conditions in-house while still capturing the Medicare reimbursements for skilled care — and avoiding readmission penalties and insurance losses.

“That’s the control element of owning a health plan,” Watson said. “It’s not just the flow of funds, but it’s also creating the structure that allows you to be successful.”

If that $82 margin seemed low, it’s because I-SNP plans aren’t necessarily major profit drivers in the traditional sense, Watson said — but operators need to look at the benefits in terms of controlling reimbursements and maintaining a steady flow of cash in generally shaky financial times for SNFs.

“These are not 10% margin businesses,” he said. “It’s not the case for the large Medicare Advantage plans, and it’s not the case for an I-SNP.”

I-SNPs also aren’t for the cash-strapped. Before a provider can even receive state-level approval to launch its own plan, it generally must prove that it has between $1.5 million to $2.5 million in capital on hand for each state in which it operates, Watson said, and that statutory requirement will only rise if the plan becomes successful and starts to attract more membership.

“As you grow, the state that has regulatory oversight of the HMO is going to look at that growth and say: We’re excited that you’re growing, but now as you get excess membership north of 1,000 and 2,000 members, we require more than the minimum statutory capital,” Watson said.

For that reason, operators shouldn’t even consider an I-SNP unless they have a clear path to enrolling 500 beneficiaries, with an eventual goal of clearing 1,000; that way, Watson said, a single unexpected hospitalization won’t completely ruin a given quarter or month.

Once a provider has an established I-SNP with strong enrollment, a quality clinical focus, and good ancillary partners, the operation will be ready for whatever payment changes could come down the turnpike in the future — from dual-eligible plans to managed Medicaid, Watson said.

“You’ve moved from the bottom of the reimbursement food chain to the top. That gives you optionality — that’s really important going forward — and puts you as a nursing home owner in a place that nursing home owners have not been historically,” he said.

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